Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Regulators conditionally approve Capital One-Discover merger, (Apr 22, 2025)

By Justin Marcus Smith, J.D.

The merger is expected to close on May 25; however, some observers expressed “mega bank” alarm at the effect the combined bank will have on market concentration.

Capital One Financial Corp. (Capital One) and Discover Financial Services (Discover) announced that the Federal Reserve Board and the Office of the Comptroller of the Currency have, as of April 18, 2025, conditionally approved Capital One’s proposed acquisition of Discover. The merger will create a more competitive global payments platform with more than 70 million merchant acceptance points in more than 200 countries. A Capital One press release said the merger is expected to close on May 25, 2025, contingent on “customary” closing conditions. However, the Fed noted that Capital One compliance with a Fed action against Discover, including remediation of certain transaction fee overcharges, is a condition of closing. The Fed otherwise said the proposed merger comported with the three statutory factors of community need and convenience; adequate resources; and competitive and financial stability.

The OCC conducted a “fulsome” review of the merger application submitted on March 21, 2024. The OCC said it considered 1,370 public written comments and comments expressed during a public meeting held with the Fed and 147 members of the public on July 19, 2024. The OCC maintained that the announced conditional approval of the merger “reflect[ed] the OCC’s careful analysis of the effect of the merger on communities, the banking industry, and the U.S. financial system.” The OCC received a mix of comments about the merger. Commenters expressed reservations about concentration; impact on Low to Moderate Income (LMI) and subprime credit consumers; and, past statutory and regulatory compliance issues, including about Anti- Money Laundering and other issues. Commenters cited various CFPB reports about market concentration, especially in credit cards, but CONA challenged CFPB methods and conclusions.

Capital One founder, Chair, and CEO Richard Fairbank offered assurance that Capital One and Discover are combining “with a profound sense of possibility and responsibility to deliver for our customers, associates, shareholders, and communities.” Discover Interim CEO and President Michael Shepherd said he expects the merger to “increase competition in payment networks, offer a wider range of products to our customers, increase our resources devoted to innovation and security, and bring meaningful community benefits.” Shepherd said there would not be any immediate changes to Capital One and Discover customer accounts and relationships.

Actions against Discover. Concurrently, the Federal Deposit Insurance Corporation (FDIC) announced three of its own orders against Discover Bank, Greenwood, Delaware, in the joint action it undertook with the Fed. The Office of Comptroller of the Currency said it considered 1,370 public comments. Sen. Elizabeth Warren (D-Mass) and various consumer advocacy groups maintained the merger will create “mega bank” difficulties that will harm consumers and affect financial stability, but the CEOs of the two banks expressed enthusiasm and touted creation of a $265 billion Community Benefits Plan. According to the OCC, Capital One, National Association (CONA) will have $660 billion in total assets at closing of the transaction.

On April 18, 2025—the same day as the regulatory approval announcement—the FDIC announced it had issued an amended and restated consent order requiring corrective action against Discover Bank, Greenwood, Delaware; a $1.225 billion restitution order aimed at helping “adversely affected” merchants and other intermediaries; and, an order for a $150 million civil money penalty. Discover Financial Services, Riverwoods, Illinois, is the Greenwood Discover entity’s parent holding company. The FDIC said the orders were in connection with an FDIC determination that Discover “misclassified” millions of consumer credit cards as commercial in a way that collected higher interchange fees. The FDIC said the misclassification resulted in over $1 billion in interchange fee overcharges. In a concurrent coordinated action about the same interchange fee overcharges, the Fed issued an order requiring corrective action and assessing a civil money penalty of $100 million against Discover Financial Services and subsidiary DFS Services LLC. The Fed stated Capital One must comply with the order and penalty as a condition for closing the merger with Discover.

Reaction to merger. Senator Elizabeth Warren (D-Mass) commented that the agencies “just rubber-stamped the creation of the largest credit card company in the country[.]” She predicted the merger will lead to higher interest rates, “junk fees,” and reduced credit hurting consumers and businesses.

In a press release, Better Markets’ Director of Banking Policy, Shayna Olesiuk, said the merger will create the “6th largest bank in the country.” Olesiuk was critical that the merger endangers financial stability. She said the regulators had a duty to deny the merger because it failed to meet the three considerations of comporting with public interest objectives, good future prospects, and financial stability. She continued that the merger was especially inopportune in light of the recent decision to eliminate the $8 cap on credit card late fees. Americans for Financial Reform’s (AFR) Managing Director for Policy, Patrick Woodall, also characterized merger approval as a “rubber stamp that creates another too-big-to-fail megabank[.]” He suggested that state attorneys general must now step in to fill the shoes of the hobbled Consumer Financial Protection Bureau in attempting to protect consumers from this “disastrous mega-merger.” National Community Reinvestment Coalition (NCRC) President and CEO Jesse Van Tol offered a similar but more terse assessment: “The feds got this one wrong—so it falls to state Attorneys General to intervene against the harmful, anticompetitive Capital One-Discover merger.”

Companies: Americans Financial Reform; Better Markets; Capital One Financial Corp.; Discover Financial Services; National Community Reinvestment Coalition

News: AcquisitionsMergers Antitrust